Put-call parity theory: Difference between revisions
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imported>Doug Williamson m (Added internal link to Risk free rate of return.) |
imported>Doug Williamson m (Link with qualifications page.) |
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== See also == | == See also == | ||
* [[Arbitrage]] | * [[Arbitrage]] | ||
* [[CertFMM]] | |||
* [[Option]] | * [[Option]] | ||
* [[Risk free rate of return]] | * [[Risk free rate of return]] | ||
Revision as of 15:49, 1 November 2014
Put-call parity theory links put and call option values via ‘no arbitrage’ assumptions and the related underlying asset price, strike price, time to maturity, and risk-free rate of return.
So for example if the put option value, underlying asset price, strike price, time to maturity, and risk-free rate of return are known, then the call option value can be calculated using the put-call parity relationship:
Underlying asset price + Put value less Call value = Present Value of strike price.
In the special case where the strike price of the options is equal to the forward price of the underlying asset, the Put value and the Call value are exactly equal.
